CDC and the future of defined contribution

Recently, I had the pleasure of delivering the keynote address at Mallowstreet’s DC Indaba in London. The event brought together leading voices from across the pensions and investment landscape to debate current challenges and emerging solutions for workplace defined contribution (DC) schemes. It was designed to foster candid discussion, offer practical masterclasses, and encourage innovation in benefit design, member engagement and scheme governance for the people shaping the future of defined contribution pensions.  

DC's challenges – and the promise of CDC 
 
Having worked in DC since I was eighteen, I have long been frustrated by the unfavourable comparisons to defined benefit (DB) schemes. The industry has delivered fantastic things for members, such as commercial DC master trusts operating at scale, digital wealth tools and novel retirement propositions. However, adequacy, engagement and governance remain persistent challenges. What gives me genuine optimism now is the evolution of Collective Defined Contribution (CDC). 
 
I began the session by laying out a basic fact: for DC members approaching retirement, trade-offs are unavoidable. If security is your priority, annuities deliver this well, but at the cost of flexibility and passing on a legacy. If you value flexibility, income drawdown is compelling, but it comes with volatility and income uncertainty. For those seeking the highest possible income for life, CDC stands out as an option that warrants thoughtful consideration. 
 
CDC schemes have the potential to deliver the highest possible income for life, but the trade-off is flexibility and leaving a legacy. 
 
Industry pressures and member perspectives 
 
Employers, members and providers each face distinct pressures. Employers want fixed costs and strong benefits, scarred by past DB experience and wary of future regulatory intervention. Members face daunting decisions, the risk of pots running out, and a pensions adequacy gap that the DC only generation, coming to retire now, will feel most painfully. While for pension providers strategy development must feel like trying to hit a moving dartboard, managing scale targets, value for money, pension dashboards and a whole host of other regulatory shifts. 
 
Despite these headwinds, DC assets are set to grow from £1.4 trillion to £3 trillion over the next decade. This presents significant opportunities for innovation and improvement. 
 
Designing smarter solutions 
 
During the presentation, I shared modelling that the team and I have conducted. We compared annuity, static and dynamic drawdown, blended DC, and CDC across key metrics: average income, volatility, probability of ruin and member experience. What emerges is a clear hierarchy: annuities offer security but lower income; drawdown delivers flexibility at the cost of volatility and the risk of running out; CDC provides the highest average income and greater security, but with reduced flexibility and legacy potential. 
 
Communication is the hardest challenge. But most members don't want a deep dive into cross-subsidies or volatility. Rather, they just want a pension they can trust. 
 
One of the most nuanced aspects is the communication of intergenerational fairness and the possibility of income reductions. Providers and trustees have to get this right to maintain member and wider industry trust. 

Our expectation is only a minority of highly engaged members want a granular understanding. The majority simply want a pension scheme where decisions are made for them, that offers reasonable value and avoids very bad outcomes. The introduction of Guided retirement and Targeted support, as outlined by The Department for Work and Pensions (DWP) and The Financial Conduct Authority (FCA), are aligned to this reality and if designed and implemented well, should go some way to meeting this need for DC members.  CDC does it naturally.  
 
CDC in practice: Market landscape and employer decision-making 
 
CDC is gaining traction. TPT has announced they are launching a whole of life multi-employer CDC scheme, and anecdotal reports suggest several other parties are engaging with the DWP and expressing interest. Life companies seem more inclined toward retirement CDC versus whole-of-life models at the moment. Employers are becoming more involved as the option to join a multi-employer scheme gets nearer, with some holding back major DC changes, waiting for CDC to become available as a potential solution to deliver DB-like benefits without funding risk. 
 
So, what does a “good CDC employer” look like? Typically, it's one with a long-term outlook, perhaps with a history of paternalistic reward strategies or a need to maximise benefit spend for competitive advantage. Duration risk and the question of universal lifeboats in the event a CDC scheme fails remain important considerations, ensuring schemes remain viable and fair for members over time. 
 
Key takeaway  
 
The day's discussions reinforced several themes: scale, communication, efficiency and the shifting role of consultants and asset managers. As regulatory demands increase and schemes coalesce, the future may see fewer, larger funds, but efficiency, flexibility and member understanding will remain central to delivering real value. 
 
Ultimately, the wrapper isn't the end of the story. The way you deliver DC is much broader than that, and scale ambitions can be achieved in different ways. 
 
Reflecting on the session, I'm struck by the need to balance innovation with simplicity, flexibility with security, and member outcomes with operational efficiency. As CDC evolves, the industry's collective challenge is to communicate its nuances effectively and design schemes that genuinely improve retirement outcomes. 

If you’d like to discuss what CDC could mean for your scheme or proposition in more detail, please get in touch.  

To read more about our work on CDC, please visit our dedicated CDC hubpage. 

Read more